Exxon sits above parliament

Jan 25, 2018 Peeping Tom

The stability clauses in the agreement between Exxon and the government of Guyana effectively render Guyana’s National Assembly impotent when it comes to the oil company. Exxon’s interests have been placed as paramount to that of the country.
Article 32.1 of the agreement signed between Exxon and the government, prevents the government from amending, rescinding, terminating or invalidating the agreement without the consent of Exxon.
In other words, what is signed is a done deal and no matter what happens, even if there is, God forbid, a major oil spill, the contract still remains valid and there is nothing that the government can do about it.
As stated in an earlier article, royalties are seen as a means of compensating for the reduction in value of a wasting asset. Exxon is still drilling exploratory wells. But it does not matter if they find more oil and decide to exploit these. Guyana cannot renegotiate a higher royalty because of the above stability clause.
Article 32.2 prevents the government from placing any increased or additional fees or taxation, royalty or duties on Exxon. In other words, the government cannot impose any additional fiscal burdens on the company.
Parliament itself can pass new legislation relating to the petroleum but Article 32.3 states that if at any time after the signing of the agreement, there is a change of laws which has a materially adverse effect on the economic benefits accruing to Exxon; the government is required to restore the benefits lost by Exxon.
In other words, parliament can pass whatever laws it wants but these cannot affect the benefits which are due to Exxon, including fiscal benefits. Once Exxon is affected in any way, the government is duty bound to restore these benefits.
The agreement goes on to provide that the action to be taken by the government shall include the obligation to resolve promptly by whatever means necessary any conflict or anomaly between the Agreement any legislation. In other words, the duty is on government to take action.
We must recall that in the 2011pParliament, we had a minority parliament, a situation which is likely to happen in the post 2020 parliament.
It means that an opposition with a one-seat majority can pass some law which conflicts with the agreement and in this case it is the minority government which will have the obligation to compensate Exxon for the loss of benefits and to remedy the conflict between the agreement and any new law.
It is understandable that a company, like Exxon, which is making a major investment, will want to ensure that its interests cannot be jeopardised. Yet, no country gives to any foreign investor the sort of leverage which the government of Guyana is giving to Exxon.
The Parliament of Guyana is effectively hamstrung in placing any additional taxes on Exxon. Since under WTO rules, the government cannot discriminate between locals and foreigners, it means that the government will be restricted in terms of its freedom in placing new or increased taxes on the petroleum sector.
The implications of the stability clause is that other investors are going to ask for similar concessions. If these are not granted, they will claim that they are being discriminated. In other words, the agreement between the government and Exxon will be used a model for other agreements.
Guyana has signed a bad agreement. No country should allow any agreement to place a foreign company above that of its parliament. No parliament should be so helpless that it does not enjoy full legislative freedom within a sector without government incurring a liability.
But worse of all is the provision which states that the government shall assert its right to the contract area and shall try to resolve any claims by other states to that area. In other words, any aggressive action taken by any foreign power within the contract area is not likely to be treated as a force majeure and therefore the government has to take action to ensure that Exxon rights are not impugned.
The agreement with Exxon is a scandal. It is far worse than the parking meter contract which was signed by City Hall.

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